alstry (< 20)

Have We Lost Control Of Inflation?

0

To fly someone from New York to Los Angeles and back, airlines spend close to $330 these days -- just on fuel. That's a 48 percent increase from last year and the main reason vacationers face record costs to fly this summer.

U.S. airlines burn an average of 22 gallons of fuel for every 1,000 miles each passenger flies. At $3.03 a gallon, airlines are currently spending $330 per passenger just on fuel for a 4,950-mile transcontinental round-trip.

A decade ago, fuel accounted for about 15 percent of airline operating expenses. Five years ago, it was 29 percent. Today, it's 35 percent.

Food remains ridiculously cheap for average Americans. During the 1930's, 25% of household income went to food. As recently as Baby-boomer childhood years of June and Ward Cleaver we spent between 20% of our household income on food, in the 80's that dropped to 15%, in the 90's 12% and in the 2000's single digits, where it has remained. In 2008, the average American household spends only 6% of income on food. Compared to 9% in Canada/UK/Ireland, 10-13% for most of Europe, and upwards 20-40% for Mexico, Russia, China, and India. Those countries will experience inflation in food in a vastly different way than Americans. Granted the lowest quartile of American's still spend north of 20% of their income on food, so they are hurt the most by commodity price input of food prices.

Fuel prices fluctuate wildly from moment to moment. Note how dramatically gasoline prices plummeted when USA economy was contracting. We consume 25% of the world's supply, so we have a pretty large influence on the demand side of the equation. Eventually our usage will be less an less influential as China and India continue to grow and consume, but in the near future we still have abundant cheap fuel (much less expensive in the states than elsewhere in the world).

Sure sure, relative to recent astronomically low airline prices, 2011 airline prices are up 15-20%. Bureau of transport statistics indicate that averge domestic fare is $359. Which is still a ridiculously cheap way to get from here to there. In spite of the fears over airline fuel costs, they know they can't really pass that on to the consumer without affecting demand. Airlines tend to race each other to the bottom. Fuel prices have been offset by reduced services provided, reduced employee compensation, and other cost saving measures. We are spoiled by very low rates on common routes with competition between airlines. That $359 we spend on a cross country flight is unbelievable cheap, In 1980, I used to routinely pay between 300 and 500 for the same LAX-JFK flight. Had $359 been reflection of actual inflation, then I should have been flying for $150 dollars in 1980. The pain has been taken by the airline industry not the consumer.

My belief is that until unemployment levels normalize and real wages start to increase broadly, inflation will not be a serious factor for the US economy inspite of rising commodity costs. In the last 2 years the feds have dumped vast quantities of cash into the economy to combat deflation (successfully I might add) That is coming to an end this summer. That alone will be a pronounced change that keeps inflation tame.

As long as McDonald's keeps offering it's Dollar Menu, I'm not too concerned about inflation.